Small firms take big hit in costs of health care

Insurance: As premiums climb, many are supporting legislation to allow small businesses to pool into associations to buy insurance or create self-insured plans.

April 30, 2003|By Andrea K. Walker | Andrea K. Walker,SUN STAFF

Every year at about the same time, Lynne King braces for the arduous task of figuring out how to continue offering her employees health insurance even as premiums skyrocket and revenues don't.

"Every time it comes up for renewal, it's a new set of nightmares," said King, who runs GAAP Software with her husband. "The premiums go up so high, and then we have to re-examine what we're going to do and how we're going to make it happen."

This year, King hired a 21-year-old to bring down the average age of employees at the company. Insurance companies often charge more for older people who may have more health problems.

Still, she said, the premiums at her home-based Burtonsville software company rose 30 percent.

But King hopes that legislation pending in Congress will make it less costly for companies like hers to buy insurance.

The legislation would allow small businesses to create association health plans, under which companies could pool together across state lines to apply for insurance as a group, or launch their own self-insured plans.

Supporters say larger pools will give the companies more leverage with insurance companies and drive down administrative costs.

"I think if you could bundle the small businesses into groups, then insurance companies would find it more attractive to offer good plans," King said. "There's no incentive now to offer a competitive rate to individual companies."

Critics, including state insurance regulators and insurers, say the plans leave small businesses vulnerable to fraud, would leave the sickest people without insurance and wouldn't solve the problem of higher premiums.

Despite the opposition, the idea of association health plans has gained a surge of support in Congress and is backed by President Bush.

Lobbying groups such as the National Federation of Independent Business, the National Restaurant Association and the U.S. Chamber of Commerce have lined up behind the bill as the problem of high premiums worsens.

Some say the legislation, which has failed in previous years, has a better chance then ever to succeed this year.

"We probably have one of the best opportunities in a long time to get this legislation passed," said Hector V. Barreto, administrator of the Small Business Administration. "The best thing is that there is bipartisan support."

The bill has passed a House committee and is still pending in a Senate committee.

Small businesses have been hit harder by premium increases than larger companies.

Premiums at companies with more than 200 employees increased 12.5 percent between the spring of 2001 and 2002, according to a study by the California-based Henry J. Kaiser Family Foundation. Premiums increased 13.2 percent for companies with 200 or fewer employees, and 14.9 percent for those with 10 to 24 employees. This was the second consecutive year of double-digit increases.

Many small companies have dropped insurance rather than absorb the costs. The foundation found that 61 percent of employees were offered insurance in 2002, down from 67 percent in 2001.

Association plans are already offered in many states. The legislation would mandate that these plans be offered nationwide for the first time.

Maryland law forbids such plans, and some state officials are already lobbying to exempt the state if the legislation passes.

Instead of association plans, the state passed small group reform in 1993. The law requires that insurance companies selling to small businesses offer a standard health benefits package designed by a state commission. It calls for each insurance company to combine all its small groups and set one rate for everybody, regardless of health, a process known as community rating.

"We feel the state has an option that would accomplish the same thing the [association plans] are set up to do," said Barbara McLean, executive director of the Maryland Health Care Commission.

In the past, association plans have caused headaches for Maryland small businesses, some state officials said. There were problems with fraud and associations closing without paying claims.

The association plans would also be exempt from state rules, which would make it easier for insurance companies to raise premiums when somebody gets sick in a group, critics of the plan said.

"The primary concern is that people with bad experiences still get singled out," said Todd Cioni, associate commissioner for compliance and enforcement for the Maryland Insurance Commission. "Even if you pulled seven Bob's Tires together, nobody is going to want them.

"The historic problem is the healthy people pool together and the sick people never find anybody to pool with."

Supporters say the legislation sets up strict guidelines to prevent abuse and puts the Department of Labor in charge of monitoring the program.

"The associations would operate under a set of regulations and standards," said Ed Frank, a spokesman for NFIB, which represents 600,000 small businesses. "There would be pretty tight standards on who could operate these associations. The legislation clearly says that the organization had to have been in business for at least three years for a purpose other than providing health care coverage."

Even if the plans aren't foolproof, Frank said, it would make health care coverage more accessible.